The Lowdown │ Global Markets to 21 February 2021

The Lowdown Global Markets to 21 February 2021

Published February 22, 2021


  • A year after the start of the pandemic, the vaccination programme is well underway.
  • While 90% of the world’s economies fell into recession in 2020, global stock markets have been very resilient.
  • In the UK, the success of the vaccination programme has pushed sterling back up to levels not seen since April 2018.
  • Commodities prices continue to rise, and global equity markets maintain their momentum… but a spring pullback cannot be ruled out.
  • Speculation mounts in the UK as the spring Budget draws near.

Global Market Summary

Should we “beware the Ides of March” as February draws to a close? A year has now passed since the start of the pandemic and the crash that followed. In those dark days of March 2020, most global economists and investors had no idea what was going to happen next.
Very few of them could possibly have predicted the ensuing lockdowns and restrictions that have since been so damaging to the global economy, and to people’s jobs and their well-being.
In fact, we now know that 90% of the world’s economies went into recession during 2020 – the greatest synchronised global economic slowdown for 150 years.
However, vaccine technology, scientific research and the expertise of the world’s leading scientists and pharmaceutical companies have resulted in the successful development of an array of effective Covid-19 vaccines, now being deployed through the fastest vaccination programme the world has ever seen.
The financial markets were quick to recognise and understand what this raft of scientific breakthroughs, government aid initiatives and central bank fiscal stimulus packages would do for financial assets. The result was a positive investment backdrop for global investors and the shortest bear market in history: the bull market which began back in 2009 has essentially continued.
The speed of this recovery has caught many global investors off-guard. The deepest recession in peacetime has quickly given way to optimistic talk of a global economic recovery that should start in 2021 and continue well beyond it. Although the early part of 2020 was challenging for financial markets, it was nowhere near as testing a time as the Great Financial Crisis of 2008-09.
Back then, the GFC was a worldwide financial crisis brought about by excessive risk-taking and the bursting of the US housing bubble, causing the values of securities to plummet. The current circumstances, however, are the result of a health crisis, which can essentially be addressed by a medical solution – a vaccine. But that simplistic picture does not mean that there have not been outright winners and outright losers: those who have benefited from COVID-19 and those who have been hit hard.
The backdrop to this year will be rollout of the vaccination programme. Here in the UK, more than 17 million people have been vaccinated since December, and the Prime Minister has pledged that all adults will be offered their first dose of a coronavirus vaccine before the end of July.
The programme is already starting have an effect on the number of daily new cases: hospital numbers are also falling, as are fatalities. On Monday, the PM will unveil his roadmap for easing restrictions and ultimately exiting lockdown in England. Although the process will be slow, we are undeniably heading in the right direction – even if some of the changes in our working and social lives will end up being permanent.
The markets have already recognised the benefits of the vaccination programmes in the UK: sterling is now above US$1.40 for the first time since April 2018. Similarly, talk of a global economic recovery and a pickup in demand for base metals have started people wondering if a new commodities supercycle might possibly be in the offing.
A number of commodities will doubtless benefit from the green revolution and the global transition to green energy. Last week, for example, copper hit its highest level since 2011 following the expected increase in demand. A shift towards electrification and the incorporation of more and more renewables into the power mix as we reduce our dependency on fossil fuels will also benefit copper prices.
As we wrote in early January, asteroid mining, once it becomes a reality, will create some extraordinary investment opportunities. In the decades to come, some of the space exploration projects currently under way could lead to hard rock mineral exploration on an asteroid or spent comet, for example. Only last week, NASA released a set of breath-taking images of Mars following Perseverance’s successful landing on the planet’s surface. Capital is already flowing into the space economy to finance exploration and quantum communication.
Meanwhile, back on Earth, the UK inflation rate edged up in January as consumers spent more on household goods, food and home entertainment to keep them amused during the third national lockdown.
Higher inflation might also become a reality in the US: the Federal Reserve Bank has held discussions about it while keeping monetary policy accommodative. Many pundits now believe that the central bank will allow the US economy to run hot for a short while before it hikes interest rates, with job creation now its top priority.
A consequence of the likelihood of higher inflation was the US 10-year Treasury bond yield booking its largest weekly rise in six weeks, finishing Friday’s session at 1.344%. Interest rates are also rising across the globe, with analysts and bond fund managers predicting further rises over the coming months.
Although this could have a short-term negative effect on the global equity markets, the consensus predicts a significant pickup in global growth, with corporate earnings offsetting any effect from higher rates. Bullish sentiment for risk assets (such as global equities) is running high: a recent global fund management survey showed that cash levels in portfolios are at their lowest in eight years.
In Japan, the NIKKEI 225 Index breached 30,000 for the first time in almost 31 years. This index hit an all-time high of almost 39,000 back in December 1989 during an asset-inflated economic boom. But then it crashed shortly after when the Japanese central bank began to tighten its monetary policy in response to what it saw as overvalued assets.
The Japanese economy and its market have subsequently experienced a number of false dawns over the past few decades. Poor government decisions, questionable central bank policy, deflationary pressures, sluggish consumer demand, bad debts and earthquakes have all hit the country hard.
But under Japan’s new Prime Minister, Yoshihide Suga, and its outgoing leader Shinzho Abe (whose programme of reforms has revitalised the economy), there are some undeniable signs of economic success on the horizon. The economy could be given further boost if the postponed 2020 Tokyo Olympics go ahead in July – although a lack of foreign visitors would be a definite drawback.
In just a few days time, UK Chancellor Rishi Sunak will unveil his spring Budget. The pandemic has been extremely costly for the UK, leaving the Chancellor between something of a rock and a hard place as far as taxes and raising them are concerned.
The focus of this Budget has to be on growth: overall large-scale taxation might need to be delayed until there are clear signs that a recovery is underway. The likelihood is that those businesses that have suffered the most will receive further support, while those which have fared better could see their taxes increase.
The spring Budget should provide us with a clearer picture of how the Chancellor intends to pay for the cost of the pandemic and reduce our debt mountain, as well as giving us some idea of his envisaged timescale. Until then, remember that your designated IQ Wealth Manager stands ready and waiting to advise you on everything to do with year-end tax planning.
And don’t forget that you can still register for the forthcoming IQ Ecovis Webinar at 8:30 AM on 25 February 2021 (this coming Thursday). The panellists will cover issues such as the forthcoming Budget, future opportunities and what you should be doing to prepare for the end of the tax year.